be. In that way, perhaps, if a fourth part of the whole demand for rediscount be transacted by the Bank of England, that takes away from the demand upon the floating capital, and I think those other three banks will obtain their discounts at a cheaper rate than if all four were competitors for it.

66 Do you know the extent to which the Manchester and Liverpool district bank has the power of discounting with the Bank of England?— I have heard it is to the extent of £400,000 or £500,000, constantly running; I do not give that as a matter of fact I am acquainted with, but I have no reason to believe it is incorrectly given.

"Supposing it be, for illustration, £500,000, the effect is, it gives greater accommodation to the business of the bank having that accommodation ?-Certainly.

"It has a tendency to compel other banks also more freely to accommodate their customers? They would not do it except they complain of it, but it is an inducement.

"It also, by the assistance it affords to the bank having that account with the Bank of England, has a tendency to lower the general rate of interest?-I think so; that must follow.

"Do you mean that it lowers the market rate of interest in London or Manchester ?-In London.

"Do you mean that many bills being sent from Manchester to London for discount, will lower the rate of interest in London ?-Bills being sent from Manchester to London for discount, will increase the rate of interest; but the Bank of England giving a greater facility, and preventing one-fourth part of the bills coming to London, prevents the interest on money being so high in London."

If it be desirable to increase the efficiency of the "measures adopted by the Bank of England, with a view to the state of foreign exchanges, and of the consequent demand for bullion," the bank should, first, discontinue their branches; and secondly, cease to act as a bank of private deposit in London. If the branches were replaced by independent chartered banks, their circulation would be controlled by the daily exchanges with the neighbouring banks. The Bank of England would be more watchful of the country circulation, and be better able to judge when it was excessive; whereas now she feels no alarm at the extent to which the country circulation is increased, provided that increase consists of her own notes: and if the bank ceased to act as a bank of private deposit in London, she would have a more effective command of the exchanges. At present, if she makes money scarce, merchants and others who have accounts at the bank draw out their

deposits; scme to employ them in their business, others to lend them at interest; thus more notes are put into circulation, and the bank must make a farther contraction to counteract this operation. If the bank did not act as a bank of private deposit, a demand for gold would necessarily contract her circulation to the extent of the gold withdrawn. If these deposits were in the hands of the London bankers, they would be more effectively employed in assisting trade and commerce in seasons of pressure. It may be said that the bank employs these deposits-so she may, but it is not in small advances to individual traders, but in large masses on the money market. As to their influence in fertilizing commerce there is as much difference between these two ways of employing money, as there is between a shower of rain and a water-spout.

SECTION VI.

AN INQUIRY INTO THE CAUSES OF THE RECENT PRESSURE ON THE MONEY MARKET.

As the recent pressure for money has extended to America, an inquiry into the causes to which it may be ascribed, is not unsuitable to an essay on American Banking.

In the beginning of last year there was no appearance of distress; but on the contrary, every symptom of prosperity, attended by its usual concomitant-a readiness to engage in speculative undertakings.

The following description of this period is taken from the speech of Mr. Clay, on introducing his motion respecting Joint Stock Banks, May 12, 1836.

"To what extent the operations of the joint stock banks may have contributed to create the present state of excitement in the commercial world, must, of course, be mere matter of conjecture. That they have

had some considerable influence is probable, from the fact that the excitement and rage for speculation is greatest in those parts of the kingdom, where the operations of those establishments have been most active. London has been comparatively unmoved, but Liverpool and Manchester have witnessed a mushroom growth of schemes not exceeded by the memorable year 1825. I hold in my hand a list of seventy contemplated companies for every species of undertaking, which have appeared in the Liverpool and Manchester papers within the last three months. This list was made a fortnight or three weeks since, and might probably now be considerably extended. It is impossible also, I think, not to suspect that the facility of credit and consequent encouragement to speculation to which I have alluded, cannot have been without its effect in producing the great increase of price in almost all the chief articles of consumption and raw materials of our manufactures. That increase has been enormous-not less than from twenty to fifty, and even one hundred per cent., in many of the chief articles of produce, of consumption, and materials of our manufactures. I am quite aware that there is every indication of this advance of price being sound; that it has arisen from consumption outrunning supply; and that our manufacturers are working on orders rather than speculation. But I cannot forget that the excitement of 1825 commenced legitimately that the rise of prices will infallibly check consumption, whilst it stimulates supply; and when we look at the amount of our paper currency resting at this moment on the somewhat narrow metallic basis of the bullion and specie in the vaults of the Bank of England, it is impossible not to feel apprehension, or at least the propriety of caution and forethought.

"The circulation of the Bank of England, as appeared by the last average in The Gazette, is

"It is right that I should say, I cannot approve of the course taken by the Bank of England in this matter. The directors of that establishment-acting, I doubt not, with the most conscientious desire to protect the interests of the community, have not taken, in my opinion, the wisest course to effect that object. With a desire to discourage the circulation of the notes of joint stock banks, they afford facilities, as I have said, to such as issue Bank of England notes. I cannot think that this mode of forcing issues is a legitimate proceeding on the part of that corporation, combining, as it evidently does combine, an increase of the currency which may not be required, with

a temptation to the joint stock banks thus supplied with its notes, to afford indiscreet accommodation.

These appearances continued with little alteration until the month of July, when the Bank of England raised the rate of discount to four and a half per cent. It then became known that there had been a demand upon the bank for gold from the preceding April, and this measure was adopted by the bank as a means of rendering the foreign exchanges more favourable. This being found ineffectual, the bank in September raised the rate of discount to five per cent. Besides raising the rate of interest, the bank adopted other measures of increasing the value of money. A large amount of American bills upon first-rate houses had been offered for discount and rejected. A high degree of alarm was immediately spread throughout the community. The dread of a panic similar to that of 1825 almost universally prevailed. Those who had money were unwilling to part with it-trade became suddenly stagnant-the prices of all commodities fell considerably, and numbers of commercial houses, chiefly of the second class, suspended payment. Many railway and other projects now fell into oblivion.

The alarm that existed was kept up by the monthly accounts of the bullion in the Bank of England. The public returns shewed a gradual decline from April, 1836, to February, 1837. It was therefore supposed, that the Bank of England would be under the necessity, for her own safety, of still further contracting her issues, and thus increasing the existing pressure. This apprehension caused all persons who had money, to retain it in their possession, and bankers and others withheld accommodation they would otherwise have been disposed to grant.

This state of alarm was considerably augmented by the publication of the Report of the Secret Committee of the House of Commons upon Joint Stock Banks. This committee had been appointed, on the motion of Mr. Clay, the Member for the Tower

Hamlets, whose speech on the occasion might be termed a bill of indictment. The joint stock banks had rapidly increased; they had issued small shares ; they had large nominal capitals; they had circulated an excessive amount of notes; they had promoted speculation. These were the charges brought against them; and they had greater weight from being advanced by a member who was known to be friendly to joint stock banking. The report of the committee appeared to sustain all Mr. Clay's accusations. This report was highly creditable to the talents and industry of the committee, but marked by a decided hostility of tone. While it enumerated all the actual or possible imperfections of the joint stock banks, it ascribed to them scarcely a single excellence. At the same time, the committee deferred to the succeeding session, the proposal of any measures for their improvement; thus the public were led to suppose, that in the following session some astringent measures would be adopted with reference to joint stock banks, but what they would be none could conjecture.

Had the report appeared at any other period it might possibly have done good; but as its appearance was contemporaneous with a pressure on the money market, and a high state of alarm, it unquestionably tended to weaken public confidence, at a time when it required to be strengthened. Persons who were unfriendly to joint stock banks, seized the opportunity of dispraising them, and believed or pretended to believe that the banks were unsound, and would certainly stop payment. Others, who were friendly, were apprehensive that the banks being still in their infancy, would be found too weak to withstand the storm now raised against them. But though this alarm began with respect to joint stock banks, it did not end there. It was soon foreseen that if a few joint stock banks were to stop payment, the private banks in their neighbourhood would be put to a severe trial; and if the banks should even be com